Rest assured, we've got it covered

You'll be pleased to hear that there are many forms of life assurance available to you. Choosing the right one for you can depend upon a number of factors including tax, cost and the protection required.

What is life assurance?

Life assurance can be used to protect income, loved ones and businesses and, in certain circumstances, can be arranged in such a way as to minimise the effect of tax.

Whole of life assurance

Whole of life policies are designed to provide life assurance coverage for an individual's whole life, rather than a specified term. They contain a savings component, the idea of which is to build up a fund in the early years which will subsidise the life assurance cost in the later years. A fixed death benefit is paid to the beneficiary, this is either the sum assured or the value of the investment pot, whichever is the greater.

Premiums are usually fixed for the first 10 years of the policy, and each 5 years thereafter, after which the policy is reviewed and the premiums or the sum assured may need to be amended depending upon investment returns. Management fees also eat up a portion of the premiums.

Whole of life policies can be useful for some people to provide for an inheritance tax liability.

Term Assurance

Term assurance is the cheapest and simplest form of life insurance. You insure yourself for a set term until a loan is paid off, for example. It doesn't contain any investment element - it simply promises to pay out if you die within the term. If you don't die within that time, you receive nothing. Term policies can either be level or decreasing. A level policy simply means the sum assured remains level throughout the term of the policy. If you die on the first day of the policy, you get exactly the same sum as you would if you died near the end of the policy. A decreasing term assurance policy on the other hand wll pay out more at the beginning of the policy than it would at the end. The way a term policy pays out can also come in one of two ways. Those that pay out a tax-free lump sum on death and those that pay a tax-free income to the end of the term, known as family income benefit policies. As usual there are pros and cons to both, a lump-sum policy can be more flexible because it allows your family to have a mixture of lump sum and income upon your death, but the income may be dependent upon investment returns at the time of death. A family income policy on the other hand is often cheaper because the liability is always decreasing for the insurer, for example, if you die in the 18th year of a 20-year policy, the insurers would only have to pay income for two years. It's also easier to work out the level of cover with this type of policy because you simply work out the income you would need to replace.

Business Protection/Cover

This deals with protecting your business from the adverse financial effects of the death of a key person, partner or shareholder. Business protection can be especially important to smaller companies whose reliance on key individuals for profit may be greater than large corporates.

There are two main types of business assurance, key man and partnership assurance / director share purchase.

Key ManThis pays a lump sum into the business in the event of the loss of a 'key person'. A key person may be a top salesman, or a key designer in a design company etc, someone whose death would have a direct and adverse effect on the company's income. The usual solution is a term assurance policy whose sum assured should be worked out with your financial adviser.Partnership / Director Share PurchaseDeals with protecting the families and co-owners in the event of the death of one of the partners / directors. Each party agrees beforehand the value of his or her share and a combination of term assurance policies and legal documents are put in place to ensure that in the event of a partner or shareholder's death, the remaining co-owners have a sum in place to buy out the family of the deceased for a fair sum.

Mortgage Protection

Mortgage Protection is a kind of Term Assurance specifically designed to repay, on death, during the term, the amount outstanding on a 'capital and interest' repayment mortgage. In other words, if the policyholder(s) die prematurely, the outstanding loan amount on the mortgage will be repaid in full.

Some policies have rider benefits, which are extra sorts of cover, added on to the principal life cover. Such benefits include:

Waiver of premium benefit - the premiums are in effect paid for you in the event of defined incapacity due to illness

Income protection benefit - a percentage of your income is paid to you if you cannot work at your usual employment

Unemployment benefit - a variety of income protection benefit

Critical illness cover - the benefit is paid before death on the diagnosis of life shortening disease (e.g. cancer). This benefit may replace the death benefit, or it may be paid as well

All these riders cost extra and are only paid subject to meeting tight criteria.